GLOBAL STRATEGY
BY
Charles D. Little, Ph.D.
GLOBAL STRATEGY
Why would a company want to do business in a foreign country?
•To reach new market opportunities and new sources of revenue
•Increasing demand for products and services world wide
•More and more developing countries
•Take advantage of new talent and diverse perspectives
•Availability of new resources
•Spread risk
•Reduce costs
•Further exploit its core competencies
•Greater ability to understand and match the needs and demands of diverse
market segments
•Greater mobility
•To maintain its competitive position
•Expand to new dimensions of competition (socially, culturally, intellectually)
•Improve the probability of survival in an expanding global economy
•May be vital to an organization’s image in the marketplace
•Essential for modern business
GLOBAL STRATEGY
What might be the risks of competing globally?
•Government policies and politics
•Fluctuating economy
•Fluctuating currency exchange rates
•Diminished control of product in channels of distribution
•Theft or destruction of product, equipment and company infrastructure
•Labor issues
•Language and communication barriers
•Cultural differences
•Demographic differences
•Illiteracy
•Transportation and distribution
•Market conditions
GLOBAL STRATEGY
New legislation spurred global competition
•North American Free Trade Agreement (NAFTA)
•Free trade agreements with developing countries
•Various state and local legislative actions to spur foreign trade
GLOBAL STRATEGY
General facts
•Since early 90’s, world trade has grown from $200 billion to $7 trillion
•The U.S. exports about 1/5 of its industrial production; 1/3 of its farms products
•1 in every 16 jobs in the U.S. is supported in some way by exports
•1/3 of U.S. corporate profits is derived from international trade
•Exports account for 25% of U.S. economic activity
•Developing countries are now formidable competitors, i.e. Japan, China, India, with
other countries in Europe, South America and Africa coming on fast
•Gillette Corp. gets 2/3 of its revenue from its International Division
•Frito-Lay grosses over $4 million from Japan alone
•70% of GM’s revenue comes from outside the U.S.
•Pillsbury sells more flour in India than in the U.S.
•Gerber has found a substantial niche in Japan for baby foods that fit the Japanese
culture , i.e. puréed flounder, spinach stew, wild duck cream stew
*Yet, the U.S. is now experiencing a significant imbalance in trade
GLOBAL STRATEGY
Crafting a strategy to compete internationally…things to consider:
•Cross country variations in growth:
*demand
*labor, technical, managerial, costs
*supporting industries and suppliers
*pattern of competition
*growth rate of the country itself
GLOBAL STRATEGY
Crafting a strategy to compete internationally…things to consider:
•Cross country variations in the value-chain:
*location based advantages
*lapses and breakdowns
*lack of control
*productivity
*talent
*costs
GLOBAL STRATEGY
Crafting a strategy to compete internationally…things to consider:
•Cross country variations in government and politics:
*potential for hostilities
*political weaknesses and conflicts
*acceptance of foreign businesses and industries
*environmental requirements
*approval of capital spending projects
*taxation
*regulations
*availability of subsidies
*local interest in the company
*cost of labor
*restrictions on exports
GLOBAL STRATEGY
Crafting a strategy to compete internationally…things to consider:
•Cross country variations in economic policies and conditions:
*rate of economic and industrial development
*stability of the monetary system
*fluctuations in the currency
*lack of property rights
*potential for loss of investment
*inflation
GLOBAL STRATEGY
Crafting a strategy to compete internationally…things to consider:
•Cross country variations in demographics and culture:
*population sizes
*variations in cultural norms, values and behavior
*income levels and purchasing power
*buyer tastes and cultural acceptance
*local standards, i.e. electricity and other public services
*promotional strategies and cultural acceptance
*growth rate of the country
GLOBAL STRATEGY
Competing internationally – Strategic Approaches
•Multi-domestic strategy: Products and competitive strategy vary dependent
upon the country in order to be responsive to varying consumer preferences
•Global strategy: Same basic competitive approach from country to country
to build international brand and product awareness
•Transnational strategy: Incorporates elements of multi-domestic and global
strategies
GLOBAL STRATEGY
Strategies for entering foreign markets
1. Establish a one-country production base
*Export only
*Good initial strategy
*Conservative
*Minimizes initial investment (little to no direct investment in foreign countries)
*Smart way to test new markets
*Contract with experienced international channel members and distributors
*Possible deployment of sales staff in primary target markets (and expand from
there)
*May open access to new markets in other countries
*Risk some loss of control
GLOBAL STRATEGY
Strategies for entering foreign markets
2. Utilize a licensing strategy
*Helps to extend positive technical expertise, an appealing brand or unique
product
*To avoid risks of committing resources and unfamiliar politics and economies
*May license trademarks and production rights (to foreign licensees)
*Avoid costs, but benefit from royalties
*Risk the loss of some proprietary knowledge and information (technology,
processes, marketing intelligence, etc.)
*Used by many software, technological, and pharmaceutical companies
GLOBAL STRATEGY
Strategies for entering foreign markets
3. Utilize a franchising strategy
*Similar to licensing
*Ideal expansion strategy
*Good to build a presence in foreign markets
*Franchisee bears preponderance of costs and risks
*Franchisor recruits, trains, supports, and monitors
*Risk associated with cultural differences, quality, consistency, standardization
(Some changes may be necessary to suit local tastes)
*Used by many fast food, servicing, and retailing companies
GLOBAL STRATEGY
Strategies for entering foreign markets
4. Utilize an acquisition strategy
*Ability to exercise relatively more control
*Allows for speedy entry into the market
*Become competitive faster
*Good for broad, large scale entry
*Achieve a strong presence in the market
*Advantage of economies of scale
*May be best strategy to overcome unfamiliar and difficult
political and economic regulatory barriers
GLOBAL STRATEGY
Strategies for entering foreign markets
5. Utilize Greenfield venture strategies
*Subsidiaries
*Complete organizational setup and transfer of technology
*Total control
*Strategy can be modified as principals become accustomed to competition,
market forces, business practices, culture, government, politics, economy, etc.
*Utilize local management talent
*Slower international entry strategy, i.e. capturing market strategy
*Capital investment required
*Long term ROI likely lucrative
GLOBAL STRATEGY
Strategies for entering foreign markets
6. Utilize alliance and joint venture strategies
*Collaborative agreements with foreign companies
*Another approach (strategy) to enter foreign markets
*Especially useful in less developed countries
*Take advantage of partners’ familiarity with buying habits, channel
relationships, product preferences, etc.
*Share risks
*May ameliorate necessity for large investment
*Allows use of partners’ established political relationships
*Good way to edge into a foreign market and win approval from government
*Offers access to complimentary resources
*Share expertise, knowledge, technology, operational and manufacturing
processes, and marketing (to fit cultures and traditions)
*Often used in conjunction with exporting, franchising, or Greenfield
GLOBAL STRATEGY
Summary and Conclusions
Times have changed drastically over the last 20 to 25 years; economically, financially,
technically, politically, demographically. No longer do any of us nor does any company
operate in a local economy even though we may think we do. Virtually all companies from
small to large, even those that serve only small, local customer bases, operate in a global
environment. The availability of materials, talent, and certainly financing is contingent on
global influences and forces. Thus, companies are forced to think globally. As such, many are
moving more and more into the international market place as a way to:
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Gain access to new and attractive markets and find new revenue streams
Extend brand recognition and broaden company image as a competitive strategy
Reduce costs, increase purchasing power, take advantage of economies of scale
Find new talent, knowledge, and diverse perspectives
Leverage core competencies developed domestically
Access new resource pools
Spread risk over a wider market area
THINK GLOBALLY!!